argentina defaults on debt

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    By Simon Gardner
    BUENOS AIRES, Sept 9 Reuters - Argentina defaulted on a $US3
    billion ($A4.57 billion) debt to the International Monetary Fund on
    Tuesday, the biggest single missed payment in the IMF's history and
    likely to further isolate the precarious economy.
    The default, which comes nearly two years after Argentina racked
    up the biggest sovereign debt default ever in the throes of
    economic collapse, means Latin America's No.3 economy joins the
    ignominious ranks of IMF defaulters like Liberia, Sudan and
    Zimbabwe.
    "To avoid compromising 25 percent of (Central Bank) reserves,
    the government has decided to suspend the payment that was due
    today," the Cabinet Chief's office said in a statement.
    "The Argentine government and the IMF have not yet concluded
    negotiations concerning a refinancing deal with the multilateral
    credit organisations (the IMF, World Bank and Inter-American
    Development Bank)," it added.
    The IMF was not immediately available for official comment on
    the default, which comes as Argentina was striving to reach a
    crucial aid deal with the IMF to roll over $US12.5 billion ($A19.03
    billion) owed over the next three years.
    However, many economists expect some kind of deal to be forged
    in coming days or weeks, and played down the default's importance
    in the near-term. It could take at least a month before the IMF
    institutes any sanctions and penalties.
    The economy has shown tentative signs of recovery in recent
    months under the stewardship of highly popular new President Nestor
    Kirchner.
    NEW NAIL IN COFFIN
    But the default is another nail in the coffin for investor
    confidence in Argentina, still a pariah for many investors after
    the government stopped making payments in January 2002 on what is
    now $US90 billion ($A137.01 billion) in defaulted, privately-held
    debt.
    Kirchner's new left-leaning government opposes IMF austerity
    plans and refused to use around a quarter of its international
    reserves to pay yesterday's debt.
    Thousands of unemployed protesters, including mothers pushing
    strollers and men waving placards such as "No to the IMF, Yes to
    education and bread!", paraded in downtown Buenos Aires, where
    people often label the IMF the "International Misery Fund."
    Kirchner, part of a growing number of Latin American leaders
    reluctant to follow Washington-encouraged pro-market reforms,
    argues that he must place priority on helping around half the
    country of 36 million people that live in poverty.
    "This is not a happy state of affairs, but the market has
    learned to live with it (Argentina's default on privately held
    debt)," said Gerd Haeusler, director of the IMF's capital markets
    department, at a Paris meeting.
    While Argentina was a darling of Wall Street in the 1990s after
    a bonanza of market reforms, now it is almost impossible for
    consumers to get a simple bank loan. Firms must rely on their own
    cash rather than credits to expand.
    "The day-to-day will not change, but a default is serious
    because it means that Argentina is refusing to deal with major
    economic issues that surged from last year's collapse and could
    eventually undermine the recovery," said Sebastian Rodrigo, a
    lawyer who advises local and foreign investors in Argentina.
    Argentina, which is not asking for any fresh cash, has so far
    failed to agree with the fund over conditions for a wider aid deal,
    including compensating banks for losses after last year's currency
    devaluation and raising frozen utility rates.
    Argentina must resolve its debt obligations with the IMF before
    it can get down to restructuring the $US90 billion ($A137.01
    billion) worth of defaulted debt held by hundreds of thousands of
    creditors from Milan to Tokyo.
    Reuters/cbs
 
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